Page last updated at 12:30 GMT, Tuesday, 27 October 2009

Checks 'affect best loan deals'

Money, credit card, newspaper cutting
Credit reference agencies were quizzed by the committee

Numerous credit checks are depriving borrowers of the best deals on loans and credit cards, a committee of MPs has been told.

The Treasury Select Committee is investigating how searches can impact on consumers' credit ratings.

Uncertainty about the system meant some people missed out on credit or were put off shopping around.

But numerous credit applications in a short period of time could signal fraud or a chequered history, agencies said.

Transparency needed

Many consumers did not know the effect that credit searches had on the rates that they might be charged, the committee hearing on Tuesday was told.

Our concern is that people do not apply because of the uncertainty of the system
Toby Van der Meer,

The committee heard various submissions from the public outlining how they applied for a loan at a certain rate, only to be "accepted" at a much higher interest rate.

Rejecting such an offer affected this consumer's status if they then applied for a different loan, according to Martin Lewis of

He claimed that 70% of people applying for unsecured credit were rejected. Of the remainder, two-thirds got the loans at the advertised rate, but the other third were offered a higher rate.

However, these numbers were challenged by the British Bankers' Association (BBA). Eric Leenders, of the BBA, said that only up to a third of those offered loans got rates higher than were advertised.

Toby Van der Meer, of, told the committee that more transparency was needed in the process as it caused a fear of shopping around.

"Our concern is that people do not apply because of the uncertainty of the system," he said.

He suggested that a system was available which allowed for "quotation searches" that did not leave a footprint on people's credit history if they decided against taking the loan.


But the credit reference agencies giving evidence at the hearing said that only a small proportion of those who apply for loans were affected.

One suggested that about 7% of consumers making applications had more than five credit searches over a three-month period, and a small proportion of these saw their credit rating affected.

Mr Leenders argued that changing the system could affect the "integrity and comprehensiveness" of how lenders shared information about borrowers. This was done to prevent high numbers of defaults and fraud.

The committee's chairman, John McFall, said that there was a huge difference in the evidence provided by the credit reference agencies and the banking group compared with that given by price comparison and consumer websites.

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